FTC targets car dealers for misleading ads

WASHINGTON — Beware of car dealer ads that promise to pay off the loan on your trade-in.

In a first-of-its-kind case, the Federal Trade Commission targeted five car dealers in four states that regulators say deceived consumers by promising to pay off their loans, no matter what was owed on the cars.

The balance, the FTC said, was usually rolled right into the new car loan.

One dealer later required customers to pay the balance out of pocket.

Settlements agreed to by the dealers would require them to stop running the ads on their webpages and other sites such as YouTube.

The settlements remain subject to a final vote by the commission after a 30-day public comment period.

The FTC has brought cases against auto dealers before, but not for this kind of advertising.

“Buying a new car or truck is a major financial commitment, and the last thing consumers need is to be tricked into thinking that a dealer will pay off what they owe on their current vehicle, when they really won’t,” said David Vladeck, head of the commission’s consumer protection bureau.

Rosemary Shahan, president of California-based Consumers for Auto Reliability and Safety, says this kind of misleading advertising pitch is a common practice among dealers, and that people who are upside down on their loans — owing more on the old car than its actual value — are especially vulnerable.

“A huge percentage of people are upside down,” said Shahan. “What they don’t realize is that they are just getting deeper and deeper into debt.”

She says it’s usually better to keep the old car and pay off the loan before buying a new car.

“The thing about cars is that they depreciate, so it’s a bad place to put a lot of money,” she said.

Some examples of ads the FTC charged were deceptive:

■ “I want your trade no matter how much you owe or what you’re driving.

“In fact, I’ll pay off your trade when you upgrade to a nicer, newer vehicle,” said one dealer’s advertisement.

■ “Uncle Frank wants to pay (your trade) off in full, no matter how much you owe,” said another.

Despite the claims, consumers still ended up being responsible for paying the difference between the trade-in loan balance and the vehicle’s value, the commission said.

As part of the proposed settlements, the dealers would be barred from future deceptive ads.

They also would not be allowed to misrepresent any other facts in the leasing and financing of a car.